Crude oil and natural gas rigs
In the week ending July 2, the US rig count rose by 12 active crude oil rigs—partially offset by a fall of nine natural gas rigs. In the 12 months to July 2, the total US crude oil and natural gas rig count fell by 1,012, or 54%. The number of active oil rigs fell by 922, or 59%. The number of natural gas rigs fell by 92, or ~30%, over this period.
Why the rig count trend matters
Rig counts tell us how many rigs are actively drilling for oil and gas. Analyzing the change in the number of active rigs can help us understand how long-term supply could evolve. Oil and gas rig counts signal how confident producers are about drilling for oil and gas.
If the rig count continues to rise, this could indicate a potential rise in the production of oil and gas in the months to come. In contrast, falling rigs point to a potential stagnation in supplies or even a fall in production.
Effect on energy companies
Higher crude oil and natural gas production will positively affect midstream energy MLPs (master limited partnerships) like Williams Partners (WPZ), Energy Transfer Partners (ETP), MarkWest Energy Partners (MWE), Enbridge Energy Partners (EEP), and EnLink Midstream Partners (ENLK).
The 54% fall in active rigs in the past year indicates a fall in exploration and production activity by upstream oil and gas companies. Apart from upstream and midstream energy companies, the falling rig count will also negatively impact oilfield service companies including Exterran Holdings (EXH), Exterran Partners (EXLP), Superior Energy Services (SPN), Dresser-Rand Group (DRC), and Oceaneering International (OII).
Oceaneering International forms 2.6% of the VanEck Vectors Oil Services ETF (OIH). A lower rig count should reduce oilfield service companies’ revenue, as upstream companies push for lower contract terms or day rates.